Trump’s trippy budget math

President Trump used to look at the economy and see “American carnage.” But a year into his presidency, the clouds have parted and the sun is shining.

Trump’s federal budget for 2019, released Feb. 12, foresees a far cheerier economic future than just about anybody else analyzing the economy. Trump expects real GDP growth to hit 3% this year, and stay near that level every year for at least a decade. Private economists think the economy will grow just 2.4% in 2018, and the Congressional Budget Office is gloomier still, seeing just 2.2% growth. Many economists, meanwhile, think a recession could hit around 2020, sending growth negative.

Trump’s outlook for jobs is unusually upbeat, as well. The Trump budget sees the unemployment rate dropping to 3.7% in 2019, and rising only slightly in ensuing years. Other economists think unemployment could drift as high as 4.9%, and that’s if there’s no recession.

Here’s a snapshot of how the Trump forecast differs from that of the CBO, a group of private economists known as the Blue Chip panel, and key members of the Federal Reserve:

Source: Office of Management and Budget

Trump’s $4.4 trillion federal budget for 2019 calls for big hikes in spending on defense, border enforcement and infrastructure, and big cuts in mostly everything else. It would cut $1.7 trillion from Medicare and other social-welfare programs, although Trump says that would come from waste and overhead, not from direct benefits to enrollees. The Trump budget would kill or slash dozens of other government programs including foreign aid, low-income housing subsidies and literacy programs.

Congress, not the White House, drafts and passes the federal budget, and it will preserve most federal programs Trump wants to axe, while giving Trump some of the spending increases he seeks. So final spending bills won’t look much like the Trump budget. Yet the president’s budget still reveals the mindset guiding Trump’s decision-making and the types of policies Trump is likely to support.

Trump’s economic assumptions diverge from the mainstream most notably around the year 2020. By then, much of the stimulus from the big tax cut passed at the end of 2017 will have worn off, and the negative effects of an “overheating” economy may very well be depressing growth. Mark Zandi, chief economist at Moody’s Analytics, recently told Yahoo Finance the next recession could materialize around then. That’s why the CBO pegs GDP growth at just 1.4% in 2020. Private-sector economists are more optimistic, forecasting 2.1% growth. But that’s still far below the Trump forecast of 3.1%.

Trump, of course, campaigned on an economic plan he insisted would bump the economy out of a slow-growth rut and push it back toward growth rates of at least 3%. So his budget outlook mirrors his campaign rhetoric. But that overoptimistic view might also mask the danger of other Trump policies, such as trade protectionism. Some analysts think recent wobbles in the stock market are an early sign of concern that the big 2017 tax cut will lead to more inflation than there would be otherwise.

Even with sharp spending cuts, Trump is willing to tolerate a federal deficit that would reach nearly $1 trillion in 2019. That suggests Trump has no worries about a massive new issuance of Treasury securities crowding out private lending, as some other economists do. If the risks flare up as some worriers expect that could hasten a recession or make one worse.